NEWLISTING Modular Techcorp Holdings Berhad - TA Online

TA Securities Holdings Bhd10 Nov 2004N E W L I S T I N GTA SECURITIES HOLDINGS BERHAD(Formerly known as Botly Securities Sdn Bhd)A Participating Organisation ofBursa Malaysia Securities BerhadRM0.43 (+7.5%)Fair ValueKLCI 876.37SHARE INFOStock CodeMODULARListingMESDAQEnlarged Share Cap (m) 122.0Market Cap @ RM0.43 (RMm) 52.46Par Value (RM) 0.10IPO (m) 30.6Issue Price (RM) 0.4Estimated Free Float (%) 36.2%Oversubscruption Rate (x) 7.66Listing Date 10 Nov. 2004Major Shareholders (%)Abd Wahid - 30.2%Ibrahim Hussain - 18.4%CRM - 15.2%RATIO & ANALYSISNTA/shr (Post IPO) (RM) 0.17Price to NTA (x) 2.5ROE - '03 34.3%ROA - '03 25.5%Net Gearing (x) after IPO net cashUTILISATION OF IPO PROCEEDS(RMm) (%)Business Expansion 5.3 43.3%R&D Expenditure 3.6 29.0%Estimated Listing Expenses 1.8 14.7%Working Capital 1.6 13.1%12.310 Nov 2004Sector : TECHNOLOGY Bloomberg : MTH MK For Internal Circulation OnlyModular Techcorp Holdings BerhadProspects Hinge on Ability to Clinch ProjectsModular Techcorp Holdings Berhad (Modular) is involved in supplyingsmart cards, developing smart card applications and providing relatedconsultancy services. The group commands a niche in the localbanking and finance sector, clinching 77% of the local Bankcard marketshare in FY03. Formerly an R&D company, the group's corecompetency lies in its ability to develop practical solutions based onsmart card technology and its in depth knowledge of key securityarchitecture. The group's major breakthrough came in 2001 when itwas appointed by MEPS as an exclusive supplier of 13 million cardsfor 12 local financial institutions. Going forward, the group has bidfor a number of high profile projects in India. In addition, the group isalso looking into RFID as a new technology to be incorporated into itsmass transportation solutions. We are fairly valuing Modular at RM0.43based on 8.3x PER of FY05 EPS. Our fair value implies aconservative7.5% upside over the issue price of RM0.40.BackgroundModular commenced operations in 1987 and is principally involved insupplying smart cards, developing smart card applications and providingrelated consultancy services. The group boasts of being one of the premiersmart card based solution providers in Malaysia. In 1997, Modular was theonly Malaysian company invited as a panel member in the Multi-PurposeSmart Card (MPC) flagship initiative to assist Bank Negara Malaysia (BNM)in various technical issues in its preparation of the concept paper on MPC.The group also claims to have launched one of the world's first applicationsto carry a customer's savings account passbook information on a smartcard for Bank Islam Malaysia in 1991.EARNINGS SUMMARY (RMm)YE 31 Dec 2000# 2001# 2002# 2003 2004E 2005FRevenue 2.4 1.4 8.6 64.9 64.9 61.6Pretax profit 0.1 0.4 1.4 9.4 9.4 8.9Net profit 0.1 0.4 1.4 6.7 6.7 6.3EPS (Sen) * 0.1 0.3 1.1 5.5 5.5 5.2EPS Growth (%) 0.0% 170.5% 283.5% 389.9% 0.0% -5.4%PER (x) @ RM0.43 397.4 146.9 38.3 7.8 7.8 8.3Div (sen) 0.0 0.0 0.0 0.0 0.0 0.0Div Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0# - FYE 30th JuneAnalystHafriz HezryE-hafriz@ta.com.my 20721277 ext 1604TA Securities Holdings Berhad (14948-M)(Formerly known as Botly Securities Sdn Bhd)Menara TA One, 22 Jalan P Ramlee, 50250 Kuala Lumpur. MalaysiaTel : 603 - 2072 1277. Fax : 603 - 2032 5048[ 1 ] Modular Techcorp Holdings Berhad

TA Securities Holdings Bhd10 Nov 2004Specialist in Smart Cards TechnologyModular's existing product range includes:i. Bankcard (key applications are ATM card, e-Debit card and e-Purse)ii. Smart Card Management System (manages the life cycle of the Bankcard,from issuance to expiration)iii. Europay, MasterCard and Visa (EMV) Smart Cardiv. ID-Mas (a multi-application smart card, mainly used as university smartcards)v. Security Access System (controls access to private areas)vi. Post Issuance Facility (allows add-on applications to be loaded ontoBankcards without having to recall the cards)vii. Mass Transportation (electronic money for drivers, who need to pay a feebefore being able to use a highway or tunnel)Asia Smart Cards CenterAsia Smart Cards Center Sdn Bhd (ASCC), an associate of Modular, is a50:50 JV between Modular and Boustead Information Technology Sdn Bhd(a subsidiary of Boustead Holdings Bhd) in 2001. Currently, ASCC specialisesin the personalisation of Bankcards for Payment Multipurpose Card (PMPC)project, including integrated chip encoding, magnetic stripe encoding andlaser engraving. It claims to be the first personalisation center in Asia to becertified by Proton World International of Belgium for Proton e-Pursepersonalisation. Modular hopes to leverage on the Boustead Group ofCompanies' strong corporate backing to further expand its presence locallyand regionally.Core Competency through Applications DevelopmentModular's competitive edge lies in its ability to develop practical solutionsrelevant to customers' requirements. These solutions are developed in-houseby its R&D team, which is primarily focused on application developmentbased on smart card technology. This is further reflected in the group'ssubstantial investment on R&D for the past 2 years of RM3.5 million. Anotherleading edge expertise possessed by the group is its in-depth knowledge ofsecurity key architecture, which is of primary concern for applications involvingthe banking and finance sector. The Key Management Security System, aproprietary security architecture developed by the group, allows securetransfers of data during usage of Bankcards in ATMs through severalauthentication processes.Niche in Local Banking and Finance SectorModular's major breakthrough came in 2001 when it was exclusively appointedby MEPS to supply and personalise Bankcards for a consortium of 12 localfinancial institutions following Malaysian government's decision to create aPayment Multipurpose Card (PMPC) for its citizens. This project involvedsupplying approximately 13 million cards to the respective banks and as at1Q04, a total of 10 million cards have been delivered. The contract value isestimated to be at least RM126.1 million, of which approximately RM97million has been billed. In addition, the group also supplied about 615,500Bankcards to 6 other non-MEPS financial institutions. In FY03, supply ofBankcards accounted for a bulky 95.8% of revenue, while the balance wascontributed by university smart cards, security access modules, softwaredevelopment and maintenance fees. Based on Infocredit market research,Modular clinched approximately 77% of the PMPC Bankcard market in 2003.[ 2 ] Modular Techcorp Holdings Berhad

TA Securities Holdings Bhd10 Nov 2004IndiaÖa Gem in the DustLooking ahead, the group is eyeing on the huge prospects in India. Indiahas a large population base of about 1.1 billion and the government is proactivein introducing new technologies. Recently, the central government of Indiahad mandated all its states to migrate to chip based driving license by 2006.Modular has since made presentations to the minister of transport of KeralaState, West Bengal and Tamil Nadu. The estimated contract value to supplyapproximately 26 million driving license to the abovementioned states isroughly RM430 million.Modular has made some in roads into India. It has recently secured a contractto supply 100,000 medical smart cards per annum over the next 5 years forMeenakshi Hospital and Research Center in Madurai, India. The contract isworth at least RM4.9 million. Furthermore, the group has been shortlistedfor the Electronic Toll Collection System at Hooghly Bridge in West Bengal,India, worth at estimated RM120 million. The final award is expected to beannounced in December 2004 and the implementation to begin by January2005.New Products Rolling OutModular is also looking to tap on its existing user base of 10 million forbankcards by offering them additional applications. Thess include:i. Financial Application Suite - targeted at financial institutions to enablesavings passbook, unit trust passbook and fixed deposit certificates tobe converted onto Bankcard.ii. Local Pin on Chip - enables the bank to issue ATM cards without pregeneratetemporary pin.iii.Enhancement for Mass Transportation - electronic cash to cater fortransportation system.iv. Medical and Health System - Integrates information such as historicaldiagnosis of a patient, blood group and any known allergies or illness.v. Motor Vehicle Insurance Applications - facilitates payment of motor vehicleinsurance and renewal of road tax.vi. EPF Applications - enables auto reconciliation of numbers and employersmonthly contribution.Apart from the above, Modular is working on a product called windshieldsticker tag (WST) which incorporates radio frequency identification (RFID)technology for mass transportation solutions. WST is a 920 Mhz radiofrequency programmable, beam powered transponder with data readingcapability at less than 10 milliseconds and data writing at less than 25milliseconds. This technology may enable a free flow system at toll lanes.Pilot test runs for WST will commence by 4Q04 and marketing in 1Q05.Furthermore, an amount of RM3.6 million has been set aside from the IPOproceeds to fund R&D for this product.Intense Competition AheadSo far, Modular has been able to command a lion share of the local bankingand financial sector market. But in the international front, it is facing fiercecompetition from major global players like Gemplus and Oberthur, whichgenerate annual revenues of above RM2.83 billion and RM1.58 billionrespectively. Gemplus specialises in the telecommunications (mobile telecomand public telephony) and financial services sector (banking, governmentand large enterprise) applications, while Oberthur is involved in the transport,financial, telecommunications, pay-TV and health care sector. The AsiaPacific region accounted for a moderate 23% and 9% respectively of Gemplus'and Oberthur's FY03 revenue.[ 3 ] Modular Techcorp Holdings Berhad

TA Securities Holdings Bhd10 Nov 2004In the local front, Modular is competing with Iris Corporation Berhad, whichhas carved a niche in the government sector. Iris was involved in theGovernment Multipurpose Card (GMPC) project to produce MyKad and theMalaysian Electronic Passport (MEP) project. Furthermore, Iris has recentlyobtained a foothold in Cambodia, Vietnam, Laos, Morocco and Syria throughthe implementation of electronic passport programs.Valuation and RecommendationWe expect Modular's revenue and earnings for FY04 to match that of FY03.However, revenue and earnings for FY05 are expected to decline by 5% and5.4% respectively due to completion of large projects. A large portion of thePMPC project has been completed in 2003, with only about 3 million cardsto be delivered in 2004. The future of Modular hinges on its ability to clinchmajor projects to fill the gaps left behind by the PMPC projects. Most of itsbids in India are still in the early stages while those that they managed toclinched so far are much smaller in scale.We believe Modular valuation is best compared to Iris Corporation Berhad.Comparing the two, Modular commands a higher ROE, higher ROA and betterPBT margin. In addition, Modular also has a healthy net cash position ofRM7.9 million. Given the above, we are fairly valuing Modular at RM0.43based on 8.3x PER of FY05 EPS. The valuation is at 20% premium over Iris'prospective PER of 6.9x for FY05.Industry ComparisonIRIS ModularFYE # Dec '05 Dec '05Share Price @ 2/11 0.165 0.43Revenue (RMm) 278.5 58.4Net Profit (RMm) 17.2 6.0EPS (sen) 2.4 5.2PER (x) 6.9 8.3PBV (x) -6.8 2.5Operating Profit Margin (%) * 11.7% 9.1%Profit Before Tax Margin (%) * 5.9% 14.5%ROE (%) * 6.8% 34.3%ROA(%) * 2.3% 25.5%NTA/Share (RM) ** 0.0 0.2Net Gearing (%) ** 4.7% net cashRevenue CAGR (FY00-FY03) 116.6% 224.6%Net Profit CAGR (FY00-FY03) 48.7% 201.6%# estimated results* based on latest financial year** based on latest quarterThe information in this report has been obtained fromsources believed to be reliable. Its accuracy orcompleteness is not guaranteed and opinions are subjectto change without notice. This report is for informationonly and not to be construed as a solicitation forcontracts. We accept no liability for any direct or indirectloss arising from the use of this document. We, ourassociates, directors, employees may have an interestin the securities and/or companies mentioned herein.for TA SECURITIES HOLDINGS BERHAD(Formerly known as Botly Securities Sdn Bhd)Yaw Chun Soon, Executive Director - Operations[ 4 ] Modular Techcorp Holdings Berhad